Steel consumption in the country grew at a slower pace during April-July 2014 at 0.6 per cent, but a 30 per cent growth in exports helped swing the demand-supply balance in favour of demand.

Domestic consumption during the first four months of the fiscal 2014-15 stood at 25.72 million tonnes as compared to 25.57 million tonnes in the same quarter last year, data from the Joint Plant Committee, a wing of the Ministry of Steel, showed. In India, over two-thirds of the total consumption of the metal is in the construction sector.

While domestic demand grew slowly, demand for the metal produced at Indian blast furnaces was supported by the growth in exports. During April-July 2014, exports grew nearly 30 per cent to 1.84 million tonne as compared to 1.42 million tonne.

Steel production too kept pace with the consumption growth. During the four months, steel production grew 0.9 per cent to 27.39 million tonnes as compared to 27.15 million tonnes.

More than half of this production came from Steel Authority of India Ltd and Tata Steel’s plants. The two companies had over 15 million tonnes of production during the four months.

The improved market dynamics reflected on the financials. SAIL reported an 18 per cent increase in net profit to ₹529.88 crore for the first quarter of fiscal 2014-15 while JSW Steel reported a net profit of ₹801 crore, turning around a loss in the same quarter last year.

Tata Steel’s business from India also improved with the company’s net profit growing 67 per cent to ₹2,267 crore.

Credit rating agencies expect the performance of steel companies to improve further in the coming months.

“Fitch expects steel demand growth to start to improve from the second half of fiscal 2014-15, supported by a pick-up in consumption following rising consumer sentiments and an expected improvement in economic growth,” said Fitch Ratings in a statement.

Fitch added that the improving consumer sentiment is reflected in the passenger vehicle sales data compiled by SIAM which has shown sales volumes increasing in June and July 2014 as compared to a fall last year. “Steel demand was weak in the last fiscal due to slow growth in the key steel consuming industries of automobiles, infrastructure, construction and engineering,” Fitch stated. In fact, Fitch expects steelmakers to pass on the increased costs due to the hike in iron ore royalty rates to customers because of the improved demand environment. “The higher royalty rates will raise the input costs of Indian steel producers by $2-5 per tonne of steel produced, depending on the type and grade of iron ore used. Fitch expects steel producers to be able to pass on their higher costs to consumers because of a likely improvement in steel demand in India,” the rating agency stated.

Meanwhile, ICRA pointed to the lower international prices of coking coal aiding steel producers. Coking coal is almost entirely imported with very little domestic production. According to the rating agency, coking coal prices have declined by 16 per cent in the first quarter of 2014-15 as compared to the same quarter last year. This drop follows a 13 per cent decline in coking coal prices over the course of 2013-14 fiscal.

“We expect the domestic players producing steel through the blast furnace route to benefit from the continuing weakness in international coking coal prices, a trend which has already been observed in the financial results posted by a number of companies in the first quarter of 2014-15,” said ICRA in a research note.

India’s domestic consumption of steel in 2013-14 was 73.93 million tonnes. Global audit and consultancy firm Ernst & Young expects India’s steel consumption to grow to 83 million tonnes by the end of 2014-15.